You have a mound of debt, and you’re not sure how to repay it. You’ve considered taking out a personal loan to consolidate the debt, but it’s hard to find debt consolidation loans for bad credit.
And if you’ve had issues repaying your debts, you might have damaged your credit score — so the very reason you need a consolidation loan might also be why you can’t get one. Here’s a look at resources that can help you if you need a debt consolidation loan for bad credit.
Debt consolidation loans and credit scores
Borrowers can use a debt consolidation loan to pay off debts and replace them with a single loan. The new loan is a chance to lower monthly payments or find a cheaper interest rate.
But qualifying for a new loan with bad credit is tricky. Loan applicants will need a credit score of at least 600 — and often in the mid-600s or higher — for easy approval and low rates.
With a credit score below that, it will take some work to find loans for which you qualify. Expect to accept some tradeoffs, such as limited options in lenders and loan types, and higher interest rates or loan fees.
7 ways to qualify for debt consolidation loans for bad credit
A bad credit score will make it trickier to qualify for a loan, but it’s still possible to qualify for debt consolidation loans for bad credit. Try the following to get the debt consolidation loan you need — even with poor credit.
1. Consolidate or refinance student loans with bad credit
2. Try lenders with low credit score minimums
3. Consider a debt consolidation loan with a cosigner
4. Check with a credit union
5. Nonprofit debt consolidation
6. Secured loan
7. Work on your credit and try again later
Yes, student loan consolidation for borrowers with bad credit is possible.
Student loans are much harder to get rid of than other debts, and are historically difficult to discharge in bankruptcy. For lenders, this makes student loans a less risky form of debt. For borrowers, this can mean lower and more flexible credit requirements to qualify for student loan refinancing.
Lenders such as First Republic, for instance, have no minimum credit requirements for student loan refinancing. They will look at your credit score, but they also consider your application based on criteria such as your income and cosigner, if you have one.
Refinancing student loans with bad credit is possible, but if you’re struggling with education debt, you’ll want to consider other options as well. Federal loan consolidation could help, as well as income-driven repayment plans.
If you have a low credit score, don’t automatically assume you can’t get a loan. Lenders have different credit requirements, and many are willing to consider lending to those with bad credit.
With some searching, you can find a debt consolidation loan for bad credit.
LendingPoint, for example, offers unsecured personal loans for borrowers with credit scores as low as 585. Make sure you read lender reviews and choose a reputable lender. Also, keep in mind that a lower credit score might result in higher interest rates.
Many lenders won’t offer debt consolidation loans for people with bad credit, but they might approve your loan application if you have a cosigner or co-borrower with good credit.
To get a debt consolidation loan with a cosigner, you’ll need two things: a willing partner and a lender who allows co-applicants. Some, but not all, lenders allow cosigners for their personal loans.
See if a partner or family member who has good credit is willing to cosign the loan, and you’ll have a better chance of approval on debt consolidation loans for bad credit.
Credit unions are not-for-profit financial institutions that focus on serving a community. Credit unions often offer less-conventional products, including debt consolidation loans for people with bad credit. Members often get some of the lowest rates when borrowing from a credit union.
Check with local or national credit unions to see what options they offer for your credit score. Some credit unions with personal loans might design their product specifically for borrowers with poor credit.
A credit union’s loan officers also often have more say in the underwriting process, so you can make your case to a human instead of getting an immediate rejection from a computer algorithm.
In addition to credit unions, there are some nonprofit organizations dedicated to helping people manage and get out of debt. These nonprofit debt counseling agencies often offer free credit counseling and debt assistance.
Find a nonprofit debt counseling organization in your community or that offers services nationally. You should verify its not-for-profit, 501(c)(3) status.
Once you’re connected with these services, many of them will have a credit counseling session to explore your debts and repayment options. They might be able to connect you with lenders that offer debt consolidation loans for bad credit.
Some also offer in-house debt consolidation through a debt management program. The nonprofit organization can even negotiate with lenders on your behalf to lower rates or cancel a portion of your balances. However, you will likely face an additional service fee to set this up, as well as ongoing maintenance fees.
If you have some assets, you might consider borrowing against them with a secured loan to consolidate your debts. With a secured loan, your assets — such as a car or your home equity — are collateral that the lender uses to guarantee the loan.
A secured loan has the obvious drawback of putting your property at risk. If you default, your lender can seize your property to settle the debt. But it also lowers the lender’s risk, so it’s much easier to get approved for a debt consolidation loan with bad credit.
It’s worth considering other options first: for example, you could sell your car and use that money to repay your debts. But if you’d prefer to hold onto the car, a secured loan can help you borrow the funds you need to consolidate debts while also retaining ownership — of course, you will have to pay back your loan, or you may ultimately end up losing it.
Last but not least, you can always spend some time repairing your credit and try again in a few months. If you can raise your credit score even 30 or 50 points, you could improve your chances of getting approved for a debt consolidation loan.
If your credit score is right on the verge of average (600 to 650), it could be worthwhile to focus on rebuilding credit.
Andrew Pentis contributed to this report.